Are the options to sustain the tourism industry sufficient?

Robin Nicholson
Director: Corporate-911

The South African tourism industry has been rocked by the discovery of the Omicron variant of Covid-19 and the international communities response to it. Once again, South Africa has been shunned by international countries who have placed us on various red lists.

We can debate about the fairness and legality of this decision until we are blue in the face. It has happened and the rest of the world are not about to make an about turn on their decision. What we need to do now, as a profession, is look at the various options that we have to support the industry and question whether they are adequate enough.

The impact on South Africa
As pointed out by an article that was published on Turnaround Talk on 6 December, a report released by Statistics South Africa on 29 April, 2021, shows that South Africa suffered significantly from the global tourism shutdown.

According to the Tourism, 2020 report released by Statistics South Africa, foreign arrivals dropped by 71% from just over 15, 8million in 2019 to less than 5 million in 2020. It is evident that the Covid-19 pandemic impacted the tourism industry quite hard around the world and in South Africa, mainly due to the lockdown and travel restrictions that were imposed.

According to the report, the overall number of travellers (arrivals and departures) decreased by 71% between 2019 and 2020. The overall number of travellers decreased by 50,7% over a 15-year period from nearly 24,6 million recorded in 2006 to 12,1 million travellers recorded in 2020.

In South Africa, the direct contribution of the tourism sector to GDP was R130,1 billion in 2018 and constituted nearly 3% direct contribution to GDP.1 In 2018, the tourism sector contributed about 4,5% of total employment in South Africa.

In 2020, the volume of tourists decreased by 72,6% from 10,2 million in 2019 to 2,8 million in 2020. The distribution of tourists by region of residence shows that 74,8% of the tourists who arrived in South Africa in 2020 were residents of the Southern African Development Community (SADC) countries and 1, 5% were from other African countries. These two sub-regions constituted a total of 76,3% tourists from Africa. Residents of overseas countries made up 23,6% of the tourists.

Some destinations are weathering the disruption better than others
Photo By: Canva

Action points
Reading a report by the United Nations World Tourism Organisation (UNWTO), it has become clear that every country in the world has been impacted by the Pandemic, it is just the degree of separation that is different.

There needs to be a global response to the sustainability of the tourism sector. The UNWTO points out that three policy dimensions are important.

First, bringing tourism back on track including in developing countries. Much needs to be done to restore the confidence of travellers, who are concerned about health, and the risk of cancelled travel plans and becoming stranded overseas. Vaccinations seem the most important element.

The report points out that, so far, the vaccine rollout has varied greatly between countries, from almost complete to hardly started. Rolling out the vaccine globally as soon as possible is an economic priority. Vaccinating 40 per cent of the global population by year’s end and 60 per cent by mid-2022 is an aspirational goal, but difficult to achieve and could cost $50 billion, according to International Monetary Fund, World Health Organization, World Bank and World Trade Organization (IMF, 2021) estimates. Nonetheless, the estimated benefits far exceed the costs. While vaccination is incomplete and herd immunity not achieved, stepping up coordination and communication on travel requirements is critical. For example, the UNWTO and the airline industry body International Air Transport Association (IATA) collaborate on a destination tracker. The European Union digital COVID certificate is a major advance in this sense, and IATA is also promoting a travel pass to facilitate the inclusion of travel documents such as vaccination certificates and test results. Other measures to facilitate travel could include cheap, fast and reliable testing. Agreed protocols for testing on departure may remove the need for quarantine on arrival. Common standards are required so that destination countries accept testing in the source countries.

Second, it is important to mitigate the socio-economic impacts on livelihoods.

The report adds that developed countries have used fiscal measures to support tourism businesses and workers. This is essentially borrowing from the future, and while helpful as a transitionary measure, incurs a debt that will need to be repaid at some stage. Where the support is for otherwise healthy businesses, it is likely to pay off.

This strategy is a challenge for most developing countries in particular where tourism is large. Social security nets do often not exist, and informality is high. Workers should be protected rather than specific jobs in declining sectors, for example through training.

Third, countries need to make strategic decisions regarding the future of tourism in their countries.

The report points out that some tourism businesses will not survive even once travel restrictions are removed. Governments need to decide which to support and for how long. Long term implications of the pandemic need to be considered. Some structural adjustment is likely to be necessary. It seems likely that Covid-19 will be around for some time. A return to normal before 2023 seems optimistic. Furthermore, environmental considerations, for example, may become more important and could increase costs for long-distance flights or increase social pressure to avoid them. Other changes may be a reduction of confidence in cruise ships, and more domestic tourism. Developing countries dependent on tourism might consider how they can diversify resources away from tourism.

The South African scorecard
How does South Africa fair when we consider the importance of the second point that was discussed above?

And additional UNWTO report points out that, as of 12 March 2021, Government was in the process of finalising a comprehensive package of interventions to mitigate the expected impact of Covid-19. So far, Government has announced:

  • The creation of a solidarity fund providing seed capital of R150 million. The fund, which will complement the government’s work, will accept donations from businesses, individuals and members of the international community and will operate through an independent board;
  • Increased assistance to small and medium-sized enterprises (SMEs);
  • A tax subsidy of up to R500/month for four months for those private sector employees earning below R6 500/month, under the Employment Tax Incentive. The South African Revenue Service also worked towards accelerating the payment of employment tax incentive reimbursements from twice a year to monthly to provide immediate cash to compliant employers as soon as possible; and
  • Tax compliant businesses with a turnover of less than R50 million would be allowed to delay 20% of their pay-as-you-earn liabilities over a four-month period and a portion of their provisional corporate income tax payments without penalties or interest over a six month period. This intervention is expected to assist over 75 000 SMMEs. The Department of Tourism made an additional R200 million available to assist SMMEs in the tourism and hospitality sector who are under particular stress due to the new travel restrictions.
Other destinations are suffering the worst impacts of the Pandemic
Photo By: Canva

The report points out that, on 22 April, Government announced a R500 billion rescue package, equivalent to 10% of the GDP of South Africa, to try to cushion the economic blow of the coronavirus pandemic. This was partially financed by global financial institutions (IMF, World Bank, etc.) and partially financed by a mix of R130 billion of reprioritized spending and other local sources.

The report adds that additional funds were made available for the health response to Covid-19, workers with an income below a certain threshold received a small tax subsidy for four months, and the most vulnerable families are receiving temporarily higher social grant amounts until end October 2020. A new temporary Covid-19 grant was also created to cover unemployed workers that do not receive grants or UIF benefits and was extended for an additional three months through January 2021.

It is clear that Government has put measures in place to try and ensure the sustainability of the tourism sector. As with everything in South Africa, accessibility to this support is always an issue and the truth of the matter is that some of the more vulnerable workers in the tourism sector cannot wait long periods of time for this support.

Are we putting our best foot forward?
Is South Africa putting its best foot forward to support this industry? Can the business rescue and business turnaround profession do more to support these interventions?

This is where our focus should be over the next few months. The Pandemic is stubbornly not going away and South Africa has a low vaccination rate; therefore, regaining the trust of international travellers may be an impossible mission. There will be a significant demand in the sector for informal restricting measures, are we positioning our businesses to take advantage of this increased demand?

Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner